ISTANBUL - Germany, Switzerland and Austria decided to pull the plug on support extended to a major dam project in Turkey citing concerns that it will destroy ancient sites and displace thousands of people. Turkey criticized the decision saying it is politically motivated. (UPDATED)

Austria, Germany and Switzerland withdrew support for export-loan guarantees to building contractors for the project because developers were unable to meet the environmental and cultural conditions set by the World Bank, the countries said in a statement.

"Despite some significant improvements, the requirements ... in the areas of the environment, cultural heritage and resettlement could not be fulfilled within the contractually stipulated timeframe," the three countries' export guarantee agencies said in a joint statement.

"As a result, there is no longer a basis for continuing the project with export risk insurance from the three countries, thus ending the export risk insurance cover."

The statement said that Ankara had failed to meet a number of conditions they had set for awarding 1.2 billion euros ($1.7 billion) worth of loan guarantees frozen in December.

The Ilisu project calls for the damming of the Tigris river and construction of a 1,200-megawatt power station as part of a $32 billion irrigation plan for impoverished provinces in Turkeys southeast.

The project has come under intense criticism as it would mean that parts of Hasankeyf, a small and poor town on the banks of the Tigris that was once a mighty city in Mesopotamia in ancient times, would disappear under water.

Turkey has said it plans to relocate antiquities and monuments from Hasankeyf, the regions only surviving city built during the Middle Ages, with roots dating to the Assyrians.

Turkey reiterates commitment

The Turkish Environment Ministry criticized the decision, saying it is politicaly motivated. The decision of the three countries' institutions is not in line with expertise reports, the statement said.

"We, as the Republic of Turkey, would like to underline that our commitment to the project which is an important part of the Southeast Anatolia Project continues," the statement added.

Critics say the dam would have destroyed Hasankeyfs unique heritage that includes Assyrian, Roman and Ottoman monuments, and displace an estimated 50,000 people.

Ankara said the project, with its 1,200-megawatt powerplant, would generate 3.8 billion kWh of electricity annually, contribute 300 million euros to the economy, create thousands of jobs and irrigate vast areas of farmland.

The proposed credit for the Ilisu project is made up of 450 million euros ($627 million) in export-loan guarantees and 750 million euros in commercial loans, according to officials from Yuksel Insaat, a Turkish constructor involved in the work, Bloomberg said.

Turkey will build the dam with its own money if foreign loans arent forthcoming, Eroglu told reporters in Ankara on July 1.